What Happens If We Don’t Raise the Debt Limit?

Much of the debt limit discussion is dishonest, like this statement from the Obama White House:

There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default.

This is wrong: under the 14th Amendment, the US cannot default on its bond obligations, and there is no need to do so. Federal revenues are more than ample to pay interest on the $16.4 trillion national debt, and to pay off federal bonds as they mature. It is the other federal spending that will have to be cut if the debt ceiling isn’t raised. Like this, for example:

A new video game featuring a black alien female superhero delivered to Earth to fight global warming is about to hit the market thanks to a $100,000 grant from the Obama administration.

The National Endowment for the Arts is funding the Spelman College of Atlanta, Ga.’s multi-episode game called “HERadventure.” In the grant announcement made last year, the NEA said the story “focuses on a young female superhero sent to Earth to save her own planet from devastation because of climate changes caused by social issues impacting women and girls.”

This is one of thousands of examples of stupid federal programs that waste your money. This is from a reader:

There are, literally, scores of thousands, if not hundreds of thousands of these in the budget–so the bleating you are hearing from liberals about the debt ceiling forcing a “default” on government “obligations” is just laughable.

There is adequate cash flow from taxes and other revenues to pay in the short term all (i) current period interest on all outstanding (or rolled over) actual U.S. government full-faith-and-credit debt obligations; (ii) entitlements spending; (iii) means tested program spending; (iv) administrative and enforcement functions; (v) military salaries and expenses. The operating deficit, at about 25 – 30% of the budget, if not funded by new debt authorizations, can be viewed as jeopardizing not “core” government functions, however expansively defined, but optional and even frivolous activities such as the one cited above.

Good. Let the New Class be exposed by vast listings of the grants, contracts, vendor agreements and programs that fall into this category. Let’s have some sunshine on these, it would be highly instructive. Excuse me–were the vast army of federal consultants, vendors and contractors, and potential grant applicants in the social-welfare-industrial, education-industrial, medical-industrial, and, yes, military-industrial complexes “expecting” the gravy train to just keep on rolling for them? That’s just too bad, isn’t it?

None of these are “obligations” that can be “defaulted” on. They are just political wishes or at most “executory” contracts, not hell-or-high-water “obligations.” Casey and Rivkin in the Wall Street Journal last week explained this at some length. In my experience the government almost always insists on no-penalty termination provisions in its contracts, based on failure to appropriate funds or other reasons or at will they can exit the contract and the other party is simply relieved from performance. That’s all, no “default.”

And the notion that we just need to “pay the bills for already incurred spending” is so misleading as to approach being a lie. Certainly there are current period accounts payable under executory contracts which have been fulfilled, but it’s likely extremely modest in amount. The “incurred spending” referred to generally is no such thing. It’s just an authorization….a political wishlist….it’s not a defaultable promise like public debt, or even actually incurred spending under a fulfilled executory contract.

Obama surely knows this, as does every lawyer–indeed, every first year law student familiar with contract law and the Uniform Commercial Code! Even if the MSM is clueless. So this is nothing but the ususal false propaganda, aided and abetted by the usual sources, either through ignorance or, more likely, intentionally dishonest obfuscation.

Presumably if the GOP holds its ground and the debt ceiling is not increased, the Obama administration will first pay the nation’s legal obligations and then prioritize the remaining funds available in the most politically advantageous manner, by withholding, for example, Social Security payments. But is it obvious that this scenario is a loser for the forces of fiscal sanity? Won’t we be able to point out that the Obama administration, at the same time it is stopping Social Security payments, is writing checks for HERadventure and a zillion similar boondoggles? The more we see, the less I am convinced that holding firm on the debt ceiling, absent a really good deal from the Democrats–and when was the last time we had one of those?–would be a bad thing.

UPDATE: Obama’s HERadventure boondoggle was first exposed by conservative blogger Jeryl Bier. Please check out his web site here.